About Pick of the Day

Every day, I will try to find what I believe is the best looking short term currency trade setup for the upcoming trading day or week. If you're a forex newbie, it can be tricky trying to figure out how to look at charts and draw lines. My goal is help you understand the psychology behind price movements in the foreign exchange markets, so you can learn to analyze your own currency charts and trade on your very own. I will post my ideas and/or reviews through out each session right here, on Twitter and on Facebook.

Getting into the Japanese Yen Selloff – Trade Closed

Good morning! We saw USD/JPY spike lower after another earthquake hit Japan yesterday morning. The pair dropped enough to trigger my long trade and then we saw the market rally back higher within the same hour. As the weekend was quickly coming to a close, I decided to close my trade to avoid weekend risk.

Closed manually at 85.25

Total: +55 pips/ +0.61% gain

So, a nice and quick swing trade for the week. The pair is dipping lower as we approach the end of the European trading session, so that’ll be it for me this week. But I will keep a watch on USD/JPY and if it breaks higher next week, or finds support in the same area, look out for me to jump in this bad boy long again. Until then, thanks for checking out my blog and have a great weekend!

Trade Idea: 2011-04-06 3:42 ET

The Japanese Yen has been getting beat like as rented mule on sentiment it’ll be the last to exit out of stimulus. With divergence signals indicating a pullback may be around the corner, will there be another chance to jump in the trend?

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary day trading blog here.

Technically, first we can see a divergence signal on the one hour chart indicating USD/JPY‘s rally may pull back in the short term. It makes sense since we saw a monster sell off in the Yen across the board since last week–Yen bears have to be gotta be tired of making loot (like this guy), right?

Well, if the they are, we may see potential support at PWH (84.74), and using the Fibonacci tool on the recent swing higher (83.85 to 85.53) we can see a potential support area between 84.50 to 84.90. Good areas to go long again?

As I mentioned earlier, sentiment that Japan may be the last to pull stimulus out of the system has been the driving force for the Yen’s most recent selloff (with the intitial force being the coordinated G-7 currency intervention). Specifically in the US, the Fed’s $600B bond buying program should continue into June as planned, even as we saw better employment data last Friday, giving hope to some for an early exit. With better economic data, and as inflation continues to rise, there is now speculation the Fed may shift to a more hawkish attitude going forward.

So, the sentiment is strongly in favor of a rising USD/JPY, and I don’t foresee any changes to that sentiment, and least not before the end of this week.

So, my swing trade idea for the week is that I will go long on a pullback to the potential support area. My stop will be the daily ATR (90 pips), and I will target 86.50. Here’s what I’m going to do:

Long USD/JPY at 84.70, stop at 83.80, profit target at 86.50

Remember to never risk more than 1% of an account on any single trade. Adjust position sizes accordingly.

No major data points are expected from the US for the rest of the week and we have the BOJ interest rated decision tomorrow, but there are no changes to interest rates or monetary policy expected. After the tragic events to Japan in March, it’s highly unlikely the BOJ will do anything to hinder their economy (ie. raise rates or remove stimulus). Technicals should hold barring any surprise, sentiment changing news–stay on your toes!